The Victorian Desalination Project: Desalination Plant

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The state of Victoria located in Australia for almost over ten years had experienced a contagious condition of drought. This had a lot of impact on the water reserves. In June 2007, the Australian government, having known her strategy, decided to concentrate on a large scale production of water reservoirs. “Our water, Our Future”, the Australian government openly announced its purpose to come up with a reliable strategic plan to develop a sea water reserve desalination plant to augment Melbourne’s water supply (GREEN, 2011). The supply of water was intended to cover a larger capacity almost up to one third of the entire state including the neighboring states. This strategic plan was based on a rainfall-independence source (GREEN, 2011).

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Without wastage of much time on 29th June 2009, AquaSure Pty Ltd, Thiess and Macquarie- was picked as the appropriate bidders towards the development of this particular project, managing out a stiff competition from Bass Water, a consortium which was led by Veolia Water, to carry out the financing, and on the same note carry out the building, maintenance and operational services, a $ 6.2 billion Victorian Desalination Project for a period of thirty complete years and a month (GREEN, 2011).

Following a wonderful announcement from the government regarding the financial close, the whole project took place alongside the global financial crisis which shook financial markets from the year 2007 to 2009. The preceding tight credit environment made a large scale of procurement of 100% which as a matter of fact was a committed funding before the last bidding to this type of huge project which required a lot to be done. In deed, the whole process was accompanied by some challenges since it was really an advanced project to carry out. It required Macquarie to appropriately utilize all of its experience in finance and banking for the project to come to a success which will make and create an environment of trustworthiness having been endowed such a duty (GREEN, 2011).

Our Water, Our Future

From the historic times, Victoria’s water supply system was generally based on rainfall. But on the contrary, for the last 12 years, the state did experience a continuous state of drought. This did cause less water to flow in Melbourne’s water storage system. Similarly, the entire population growth was increasing greatly when it comes to water supply system within the city’s population growth which was supposed to be almost 7.6 million in number by the year 2009 (BOARDMAN, 2010). And as a result, in 2007 the state of Victoria including the government did call for expressions of interest (EOI) to aid in constructing one of the world’s largest sea water reverse osmosis desalination plant to be put under a public-private partnership (PPP) in order to carry out the supply of water in the entire city (BOARDMAN, 2010).

Public- Private Partnership

The public private partnership framework was entirely governed by the state and involved private sectors towards the development of this particular project including the necessary provision of services and even the required facilities for the whole process. This is usually dealing with infrastructure, for example the private finance initiative (PFI) which has its origin in United Kingdom (UK) in 1992 under the governance of John Major. The role of the private sector in this process is to design, build and carry out the financing of the construction of the assets and then to maintain and run them effectively (ASQUITH, 2012). In return to the work done, they may either receive payments from the government for example from budget revenues such as shadow tolls or even from the revenues the government gets from its assets or even the use fees. As a matter of fact, this project will bring and create employment opportunities to both the sectors, private and public sectors (ASQUITH, 2012).

Lots of argument did arise in support of public-private partnership as one of the reliable ways to provide the highly needed infrastructure particularly when all the government budgets are in considerable control. For example, in the United Kingdom, the biggest attraction they did make greatly came from the development of infrastructure which had to be built for the betterment of the results (GREEN, 2011). The infrastructure development was to be done without borrowing any finance from other sector. On the contrary, as appointed out by great economists in the vein of Paul Grout, given that the building of the these particular assets was often accompanied with the involvement of the public sector, the impact on the fundamental government finance had to be greatly similar. If for example, the assets are owned by the public sector, there is an absolute commitment to fund the debt, and again if the asset is owned by the private sector the commitment had to be the same but as service contract (HODGE, 2010).

Other promoters of Public-Private Partnership point out to give confidence in the delivery of infrastructure services, since it did pack financing matters, building activities and operations were under the same firm. For several infrastructure projects, the operation and maintenance costs entirely relied on the investments made for the duration of the preliminary construction phases. Given that a firm with a PPP contract had to enjoy fractional or total ownership rights throughout the agreement period and on the same note kept great part of the gains from the general cost cutting processes, there were a number of steps which were enticement to cut life cycle cost by enhancing efficiency gains. The estimation had been carried out that the private sector could reduce the operating expenditure by roughly 40% and total capital expenditure of 25%. In deed this is worth being appreciated, the cost saving act has combined the responsibility for carrying out the construction, operation and even the maintenance in just but a single entity (LADEWIG, 2012).

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On the other part of cost saving, though, it was a requirement for close monitoring on the side towards carrying out a regulating authority in order to make sure that there was no diminution in the quality of services. Another possibility on the side of cost saving was that the private sector could change everything and refuse to approve costlier, better and improved technology in conjunction with the surrounding and safety concerns. Due to prolonged nature of the contract service, it could possibly prove to be most advantageous. For example it might be very difficult to obtain the necessary idea of what are sensible standards of quality it would be, for example, within a period of twenty to thirty years to come or even congestion in roads within seventy years to come. The project entirely depended on the construction of a suitable structure for the success of the Victorian Desalination Project. The partnerships of the Victorian Project came at a time when the whole of the state had an outcry for adequate water supply (GREEN, 2011).

The Victorian Desalination Project

The desalination plant is the largest Public-Private Partnership project in the world which commenced in the year 2009; it would be an important project in line with Victoria’s water infrastructure to supply almost up to one third of water to the entire states including the neighboring states. This project starts to operate this year 2012 in December. It will supply up to 150gigalitres of water within one year to Melbourne as much as it can comfortably hold. It would in deed supply water to many neighboring states. The project managers or groups came to a conclusion in order to construct up to 150 GL desalination plants, tunnels and even additionally aid in supplying the plant with water from the sea (HODGE, 2010).

. The discharge from the plant had to be disposed of back to the sea. Eighty five kilometers of pipeline was constructed to transport treated water to the Melbourne Water network system and eighty eight kilometers are the underground high voltages current that were acting as the transmission line. In addition, AquaSure’s role was to ensure that procuring the water supply is done as required, it had to ensure that the purchases for renewable energy is put into effect as stated by the state (WITTWER, 2012).

After a duration of one month, the assets were to be taken back to the state with zero additional payment from the government or the state. They were expected to be in good working conditions after the completion of the necessary task. The life span of the assets were to have a longer life span that that of the entire project.

After the completion of the project, water would be ordered by the government and then supply would be carried out by the AquaSure which had to supply water only if requested by the state government. The order would be between zero to one hundred and fifty liters per year. As a matter of fact, it was the role of the state to monitor all the supplies of water to all other states within and outside the city. Additionally, it is only the state that is allowed to increase the supply of water in any given year. AquaSure has absolutely no responsibility to supply water to any third party. AquaSure derives its revenues from the monthly payment services from the state government (RYGAARD, 2009).

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Cost- pricing

The state did build a public sector comparator which will help in checking the private sector when it comes to provision of money value. This sector also covered the amounts that are used in designing, construction and maintenance. In addition, the cost for operation and management of the facilities available were expected to be done by the firm during the whole process of the project. The PSC costs were higher than that of AquaSure by almost one million thereby saving approximately fourteen per cent (UYEDA, 2009).

Structure

In order to take on with the project, the winning group did set up AquaSure as a detached special purpose vehicle that was endowed with different services that are required to get the project to the next level were greatly put in consideration. In the whole project, these were the main players towards the success of the project. AquaSure, the sponsors, the state of Victoria, D&C contractor, O&M contractor, Melbourne Water, Equity providers and so much more. All these counterparts had a role to play towards the establishment of this project to become successful. The State of Victoria was to work closely with the minister of water on behalf of the state. Melbourne was a state owned company that had the role of paying for desalinated water that is produced by the AquaSure. Equity providers worked from both the domestic and global equity providers (VICTORIA, 2010).

Financing

Before the onset of the international financial crisis, the Australian infrastructure market was financed by domestic and global banks projects which operated fully towards the project. In order to increase competitive tension among bidders, the Victorian government wanted the banks not to provide financial banking to more than one group as opposed to its initial stages (ALBRECHTSEN, 2009).

Equity for the Victorian desalination project was supplied by the suppliers, investors who contributed finance, sponsors in conjunction with Macquarie as the sole equity manager and investor and even was even the underwriter. The entire project required three point seven million dollars as debt for financing the package on the financial close. All these companies or groups had a lot to contribute towards the success of this project. Currently, the main plan to be put in place is on how to control the profits that arise and how to ensure that the management is appropriately conducted among the groups who act as shareholders towards the success of the project.

Regardless of the progressive continuity of the project, there arose a number of questions concerning the expensive option that was put in place by the state government and the group. The market observer did blame the whole project claiming that an expensive option was chosen. Desalination as one of the methods of water procurement did receive more criticism from the report that was released after its completion on this year June on 29th (VICTORIA, 2008).

In order to be factual towards this project, time management is really observed and the groups concerned about the entire process did their work accordingly without biases and wastage of time. All the parties involved were serious and were experienced towards the development of the entire process (ROTH, 2011). Construction at the Victoria desalination plant a little bit delayed not only the continuous industrious action, elements of bad weather had also contributed to the delay of the project. Some time later flooding also delayed the process as it was responsible for destruction of part of the project. This flooding threat led to escalating fear towards the distribution of the taxpayer’s costs. The accomplishment of the entire project was to be due by late this year December on 21st. the company unfortunately had to face penalties for any sort of delay towards the supply of water (ROTH, 2011).

As a result of these unavoidable delays, damages caused by flood and the rising cost, Leighton Holdings, the mother company of Thiess did proudly announce that it was to make a profit of roughly a $ 6 million as a result of this project. Even though the whole process of the project was costly, lots of profits did also emerge at long last (ROBERTSON, 2012).

References

GREEN, C. J. (2011). The financial crisis and the regulation of finance. Cheltenhem, Elgar.

HODGE, G. A., GREVE, C., & BOARDMAN, A. (2010). International handbook on public private partnerships. Cheltenham, Edward Elgar. Web.

LADEWIG, B., & ASQUITH, B. (2012). Desalination concentrate management. Heidelberg, Springer.

LI, X., TURNER, G., & JIANG, L. (2012). Grow in Concert with Nature Sustaining East Asia’s Water Resources Management Through Green Water Defense. Washington, World Bank Publications.

ROBERTSON, M. (2012). Schooling for sustainable development a focus on Australia, New Zealand, and the Oceanic Region. Dordrecht, Springer.

ROTH, M., & ROTH, M. (2011). Top stocks 2011: a sharebuyer’s guide to leading Australian Companies. Milton, Qld, Wrightbooks.

RYGAARD, M., BINNING, P. J., & ALBRECHTSEN, H.-J. (2009). Alternative water management and self-sufficient water supplies. London [u.a.], IWA Publ.

UYEDA, C. (2009). Australian master environment guide. North Ryde, N.S.W., CCH Australia.

VICTORIA. (2008). Victorian Desalination Project Environmental Effects Statement. Melbourne, Victorian Government Dept. of Sustainability and Environment.

VICTORIA. (2010). Victorian Desalination Project. Melbourne, Vic, Dept. of Sustainability & Env.

WITTWER, G. (2012). Economic modeling of water the Australian CGE experience. Dordrecht, Springer.

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